ISLAMABAD (Reuters) - With Pakistan's economy tanking and a Taliban insurgency raging, new president Asif Ali Zardari must choose if the time is right to risk more instability by entering a confrontation with old rival Nawaz Sharif.

A new power struggle is about the last thing the West would want in a nuclear-armed Muslim state whose backing is central to defeating al Qaeda and helping NATO stabilise Afghanistan.

Zardari and Sharif formed a coalition this year aimed at booting former army chief Pervez Musharraf out of the presidency, but after accomplishing that last month, their alliance collapsed and Sharif became leader of the opposition.

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If Zardari and others "have revenge in mind, then the game is lost before it is begun", concluded Ardeshir Cowasjee, one of Pakistan's most venerable columnists, in the Dawn newspaper on Sunday, a day after Zardari's election.

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How he handles the reinstatement of judges dismissed by Musharraf last year will go some way to determining his credibility, as he has stalled on the issue so far.

Sharif, the prime minister who was overthrown by Musharraf, pulled his Pakistan Muslim League (Nawaz) (PML-N) party out of the coalition because of Zardari's stalling on the question of the judiciary, just days after his usurper quit.

Eyes are now on Punjab, Pakistan's richest province, to see if Zardari tries to destabilise a PML-N provincial government.